That’s the title of a improbable editorial from Olivença et al. (2024). Lots of people after they take a look at pharmaceutical costs assume they’re ‘too excessive’ or ‘too low’. However the query is, too excessive or too low relative to what? What are our objectives in pharmaceutical pricing. The editorial clearly articulates the problem as certainly one of a market design drawback. I’ve heard one of many co-authors (Dr. Lou Garrison) make this remark a number of occasions at conferences, however it’s useful to see this written down in print.
Of word is that the market exclusivity medicine get pleasure from covers simply the manufacture of a selected product; rivals could arrive with competitor therapies and an identical generic copies could arrive after market exclusivity ends.
The worth of this monopoly energy is proscribed by market competitors and time. This results in a market framework that promotes medical innovation by providing probably massive however unsure returns for high-risk investments, whereas utilizing competitors to control costs within the later phases of the product lifecycle.
The article begins by arguing towards setting drug costs simply primarily based on analysis and improvement (R&D) value:
[Cost plus pricing]…not solely fails to acknowledge riskiness of those investments and the irrelevance on this market design of the prices of any particular product, but in addition the difficulties in figuring out related failed merchandise and in measuring their prices. Moreover, this angle would fail to convey the true worth of novel medicines for sufferers and society, and thus stifle innovation by sending no alerts of worth to traders within the extremely dangerous subject of drug improvement.
The article argues towards value setting resembling these argued by Bernie Sanders amongst others:
Notably, Senator Bernie Sanders has just lately requested Novo Nordisk for the R&D prices of semaglutide, a therapy for weight problems. It’s crucial that we talk that utilizing R&D prices to find out pricing is flawed and as a substitute focus must be made on estimating the complete worth {that a} drugs supplies to sufferers, their households and society. The ‘blockbuster mannequin’…which depends on the revenues of profitable medicine to cowl the prices of the various failed makes an attempt, is usually misunderstood or ignored in discussions about drug pricing and regulation. After all, firms can nonetheless make revenue on a ‘marginal’ product if the revenues cowl the marginal R&D value and prices of manufacturing and distribution; however an organization wants a couple of merchandise averaging multiples of common R&D value to cowl the failed merchandise.
The determine beneath summarizes the blockbuster mannequin.
A really attention-grabbing and clearly articulated editorial all through. Learn the complete piece right here.
